December 2004 - The Netherlands

Taxplan 2005

As of 1 January 2005 the Dutch corporate income tax rate is reduced from 29% to 27% for profits up to Euro 22.000 and reduced from 34,5% to 31,5% for profits above that. These percentages drop to 26% and 30,5% as of 1 January 2006 and to 25% and 30% as of 1 January 2007.

December 2004 - The Netherlands Antilles

Proposed changes to the Netherlands Antilles fiscal regime.

In order to address criticism contained in the Primarolo report regarding the Netherlands Antilles' compliance with the EU Code of Conduct the following changes to the Netherlands Antilles fiscal regime are planned to enter into force as per 1 January 2006:

A) a 100% participation exemption (currently 95%) for income (dividends and/or capital gains) derived from foreign participations if the following conditions are met:

• subject to tax condition: the foreign participation must be subject to income or profit tax in its country of residency;
• non-passive investment condition: the foreign participation's gross income may not be comprised of more than 50% dividends, interests or royalties received from outside the scope of an enterprise conducted by the foreign participation;

Please note that the changes will apply to existing companies as from 31 December 2010.

B) tax exempt NABV's receiving dividend income which has not been subject to tax of at least 50% of the Netherlands Antilles tax rate may loose their tax exempt status if the gross income received from these dividends exceed 5% of the gross profit of the NABV.

Please note that the changes will not apply to existing companies until from 31 December 2010.

C) model rulings with fixed cost-plus percentages or fixed spreads will be abolished and replaced by custom made rulings in which the cost-plus percentage or spread is determined based on the specific circumstances and comparable market situations.

Please note that these changes do not apply to companies to which the transitional rules effective until 2019 apply.

Once the changes have come into effect the Dutch government has agreed to enter into a new tax regulation for the Kingdom of the Netherlands ("BRK") whereby a dividend withholding tax of 0% (currently 8.3%) will be introduced with respect to participating interests of 25% or more.

The following structure shows the (renewed) attractiveness of the so-called Dutch sandwich after the new BRK has come into affect.

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December 2004 - Belgium

1. Double Tax Treaty between Belgium and Hong Kong.

Following the publication in Belgium end November 2004, the Double Tax Treaty between Belgium and Hong Kong became effective from January 1st, 2004 in Belgium and from April 1st, 2004 in Hong Kong. This new agreement can be very attractive to Hong Kong Investors because it is the first time that Hong Kong has signed a double tax agreement with any country.

The new treaty determines, amongst others, that the source tax on dividends shall not exceed 5% of the gross amount of the dividends paid by a subsidiary to a company that owns at least 10% of the capital of the same subsidiary. If the company directly owns at least 25% of the same subsidiary, the dividends shall be exempted from the aforesaid source tax.

In order to secure the business community*s support, the treaty determines that the source tax on royalties shall amount to 5% and that the source tax on interest shall amount to 10% (subject to many exceptions). The treaty therefore does away with the competition problems that some Belgian companies have had to face thus far and creates favourable conditions for investments in Belgium sourced from Hong Kong.

2. Paid-in capital of the One-Person Private Limited Liability Companies.

As from 2 August 2004, the one-person BVBA/SPRL (private company with one shareholder) or in case an existing BVBA/SPRL with more than one shareholder becomes a one-person BVBA/SPRL, these companies must have a paid-up capital of at least 12.400,00 EUR (instead of the former 6.200,00 EUR).

For the common BVBA/SPRL (private company with more than one shareholder), the minimum paid up capital is still 6.200,00 EUR. The amount of the minimum authorized capital for the BVBA/SPRL remains at 18.550,00 EUR.

3. Coordination centre in Belgium

The Corporate Tax Reform Bill introduced new provisions on coordination centers. In the future, the taxable basis of coordination centers will continue to be determined on the basis of operational expenses and spending, whereby a full costs base will be taken into consideration (including personnel and financial costs). The actual profit mark-up will be determined on a case-by-case basis and a case-by-case ruling. As before, coordination center status will be granted for a renewable ten-year period. The current tax regime for already existing centers will expire in 2010.

Until now the political discussions concerning the coordination center between Belgium and the European Commission are still in abundance to pace. And according to the last sources this will drag on for some time.

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Contact us

If you wish to receive more information on these subjects please call your contact person at Wassenaar (+31 70 5140267), Amstelveen (+31 20 6400361), Antwerp (+32 3 2260883) or Luxembourg (+352-061 928 462).

The information in this News Flash is informative and should not be relied upon in decision making. International tax planning and financial structuring are subject to constant changes and we therefore strongly recommend that each potential user of our services seeks professional tax and legal advice in his/her country of origin before deciding on the use of international financial structures.

FTC and CSB will not be liable for any damages, costs and expenses resulting from or incurred with any action taken, or any action omitted, based upon any information contained in this News Flash.

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